New York & Company, Inc. Announces Spring Season and Second Quarter Fiscal 2018 Results
NEW YORK--(BUSINESS WIRE)--Aug 23, 2018--New York & Company, Inc. [NYSE:NWY], a specialty apparel chain with 426 retail stores, today announced results for the Spring season and second fiscal quarter of 2018 representing the 26 weeks and 13 weeks ended August 4, 2018, respectively. Due to the 53-week year in fiscal 2017 the prior year Spring season and second quarter periods ended July 29, 2017.
Gregory Scott, New York & Company’s CEO stated: “We were very pleased with our strong operating results in the second quarter with positive comparable store sales, expansion in gross margin and operating profit which significantly exceeded our guidance. This strong performance contributed to the success of our Spring season, completing a successful first half of the year with operating income surpassing guidance and notable accomplishments toward our stated goals. Our results continue to demonstrate the successful execution of our strategy to evolve our operating platform to meet the needs of how consumers are shopping today while increasing efficiency across the enterprise. We believe the Company is becoming a key omni-channel shopping destination with sought after celebrity brands, great style and great value.
“Moving into the second half of the year, earlier this week, we announced a multi-year partnership with Kate Hudson which follows our already successful collaborations with Eva Mendes and Gabrielle Union – which provides us with another catalyst for growth and further differentiates and defines our Company from peers,” added Mr. Scott. “I am excited about the opportunities that lie ahead and believe we remain well-positioned to continue our positive performance in the Fall season, which is further supported by our guidance that includes growth in operating income versus the comparable Fall season last year despite more difficult comparisons due to the prior year’s 53 rd week calendar.”
Spring Season and Second Quarter Fiscal Year 2018 Results (26-week and 13-week periods ended August 4, 2018 compared to the 26-week and 13-week periods ended July 29, 2017):
Spring Season For the Spring season the Company exceeded its most recent adjusted operating income guidance with GAAP operating income of $6.5 million and non-GAAP operating income of $7.8 million, as compared to $1.3 million in GAAP operating income and $1.2 million in non-GAAP operating income in the prior year period. Contributing to this strong performance was a comparable store sales increase of 1.7% for the season, margin expansion to the highest levels since 2005, and diligent management of expenses.
Second Quarter As it relates to the second quarter of fiscal year 2018, the Company noted the following:Net sales were $216.4 million, as compared to $224.1 million in the prior year. The decrease in net sales reflects a reduced store count and the shift of an important pre-Mother’s Day week into the first quarter, which resulted from the shifted retail calendar due to the 53 rd week in fiscal year 2017, and was partially offset by increased sales from Fashion to Figure. Comparable store sales increased 0.6%, as compared to the same period last year, representing the fourth consecutive quarter of positive comparable store sales which was led by growth in the Company’s eCommerce business and strength in outlet stores, and in particular, outlet conversion stores. Gross profit as a percentage of net sales increased 150 basis points to 32.1% versus fiscal year 2017 second quarter gross profit percentage of 30.6%, reflecting the highest gross margin rate achieved in the second quarter since 2005. The increase during the quarter reflects a 160 basis point increase in merchandise margin, reflecting reduced product costs, decreased promotional activity and shipping efficiencies, partially offset by a 10 basis point decrease in the leverage of buying and occupancy costs due to lower gross sales. Selling, general and administrative expenses were $66.3 million, or 30.7% of net sales, as compared to $63.4 million, or 28.3% of net sales in the prior year period. The current year’s quarterly results included $0.4 million of non-operating charges, primarily related to an ongoing trademark infringement matter and a class action lawsuit. The prior year included a benefit of $1.7 million related to these matters. On a non-GAAP basis, selling, general and administrative expenses were $65.9 million, or 30.4% of net sales, as compared to non-GAAP selling, general and administrative expenses of $65.1 million, or 29.1% of net sales in the prior year. The increase during the quarter reflects increases in variable compensation accruals which are based upon operating profit results, partially offset by reductions in marketing expenses, and decreases in both store and home office payroll costs. GAAP operating income for the second quarter of fiscal year 2018 was $3.1 million, as compared to $5.2 million in the prior year. However, as previously stated, the prior year included a non-operating benefit of $1.7 million, as compared to the current year which included a charge of $0.4 million. Excluding these non-operating adjustments, non-GAAP operating income was $3.5 million, which significantly exceeded our guidance of $0.7 million to $1.7 million and was flat to the prior year’s non-GAAP operating income of $3.5 million despite the shift of a significant sales week into the first quarter of 2018 and the associated incremental gross margin contribution. GAAP net income for the second quarter of fiscal year 2018 was $3.1 million, or earnings of $0.05 per diluted share, as compared to $4.8 million, or earnings of $0.08 per diluted share in the prior year. On a non-GAAP basis, the second quarter adjusted net income was $3.5 million, or $0.05 per diluted share, as compared to $3.1 million, or $0.05 per diluted share last year.
Please refer to the “Reconciliation of GAAP to Non-GAAP Financial Measures” in Exhibits 5 and 6 of this press release, which delineate the non-operating adjustments for the three and six months ended August 4, 2018 and July 29, 2017. GAAP is defined as Generally Accepted Accounting Principles in the United States.
Other Financial and Operational Highlights:Total inventory at August 4, 2018 decreased 0.8%, as compared to July 29, 2017, reflecting reduced inventory due to lower store count, partially offset by a slight increase to support the growing eCommerce business. Capital expenditures for the Spring season of 2018 were $1.6 million, as compared to $4.7 million in the prior year period. During the second quarter, the Company opened 1 Outlet store, converted 2 existing New York & Company stores to Outlet stores, closed 5 New York & Company stores and 2 Outlet stores, as well as remodeled/refreshed 3 existing locations ending the Spring season with 426 stores, including 120 Outlet stores and 2.1 million selling square feet in operation. The Company ended the Spring season with $94.8 million of cash on-hand, no outstanding borrowings under its revolving credit facility and no long-term debt.
Regarding expectations for fiscal year 2018, the Company continues to focus on improving its operating results to drive increases in both annual operating income and EBITDA. As previously disclosed, fiscal year 2017 included an extra week in the traditional retail calendar, which contributed approximately $12 million of sales and related margin to the prior year results. As such, the Fall season in 2018 includes one less week of sales than the prior year period. As the Company enters the Fall season, the combined effects of one less week, a shift in the calendar resulting from the 53 rd week in 2017 and the new revenue recognition accounting standard will impact the overall seasonal results as well as the individual quarterly results, and as such, the Company is providing commentary on the overall Fall season, which combines the third and fourth quarters of fiscal year 2018, in addition to more detailed commentary on third quarter financial metrics.
For the Fall season, combined third and fourth quarter of fiscal year 2018, the Company expects comparable store sales to increase in the low single-digit range, leading to improvements in operating results. The Company expects GAAP operating income to be in the range of $5.5 million to $7.5 million, which includes more than $2.0 million of incremental costs to launch the Company’s new celebrity collaboration, and incremental costs to develop certain new businesses, as compared to the prior year GAAP operating income of $5.6 million, which included the benefit of one additional week of sales due to the 53-week year in 2017.
For the third quarter, the Company is expecting GAAP operating income of $1 million to $2 million, as compared to a GAAP operating income of $0.6 million in the prior year.
The third quarter guidance reflects the following:Net sales are expected to increase in the low single-digit percentage range, reflecting benefits from the shift of the retail calendar, combined with growth in eCommerce sales, partially offset by a reduced store count. Comparable store sales, which are shifted to compare like calendar weeks, are expected to increase in the low single-digit percentage range, driven by celebrity collaborations, the introduction of Kate Hudson for Soho Jeans Collection and growth in the digital business. Gross margin on a GAAP basis is expected to increase by 50 to 150 basis points reflecting continued improvements in merchandise margins, resulting from decreased product cost and reduced promotional activity, combined with leverage of reduced buying and occupancy costs due to our continued expense control efforts. Selling, general and administrative expenses on a GAAP basis are expected to increase by up to $2 million versus the prior year’s third quarter. This reflects an increase in selling expenses driven by increases in eCommerce variable costs and marketing spending due to the Company’s new celebrity collaboration, partially offset by reduced home office costs.
Additional Outlook:Total inventory at the end of the third quarter is expected to increase in the low to mid single-digit range, as compared to the prior year, largely reflecting the shift in calendar with quarter end one week closer to the important holiday season. Capital expenditures for the third quarter of fiscal year 2018 are projected to be approximately $4 million to $6 million, as compared to $3.1 million of capital expenditures in the third quarter of the prior year, reflecting continued investments in the Company’s information technology and omni-channel infrastructure, and real estate remodel/refresh activity. For the full year, capital expenditures are projected to be $10 million to $11 million, as compared to $12.5 million in capital expenditures in the prior year. Depreciation expense for the third quarter of fiscal year 2018 is estimated to be approximately $5 million. During the third quarter of fiscal year 2018, the Company expects to open 2 Fashion to Figure stores, open 3 New York & Company stores, remodel/refresh 3 existing stores, and close 1 New York & Company store and 1 Outlet store.
Comparable Store Sales:
A store is included in the comparable store sales calculation after it has completed 13 full fiscal months of operations from the store’s opening date or once it has been reopened after remodeling if the gross square footage did not change by more than 20%. Sales from the Company’s eCommerce store, including Fashion to Figure eCommerce sales, and private label credit card royalties and related revenue are included in comparable store sales. Fashion to Figure retail locations are not included in comparable store sales calculations until they complete 13 full fiscal months of operation. In addition, in a year with 53 weeks, sales in the last week of the year are not included in determining comparable store sales.
Conference Call Information
A conference call to discuss second quarter and Spring 2018 results is scheduled for today, Thursday, August 23, 2018 at 4:30 p.m. Eastern Time. Investors and analysts interested in participating in the call are invited to dial (877) 407-0784 and reference conference ID number 13682423 approximately ten minutes prior to the start of the call. The conference call will also be web-cast live at www.nyandcompany.com. A replay of this call will be available at 7:30 p.m. Eastern Time on August 23, 2018 until 11:59 p.m. Eastern Time on August 30, 2018 and can be accessed by dialing (844) 512-2921 and entering conference ID number 13682423.
As a supplement to this press release, slides with information regarding the second quarter and Spring 2018 results and outlook for third quarter 2018 will also be available at: www.nyandcompany.com at approximately 4:20 p.m. Eastern Time on Thursday, August 23, 2018.
About New York & Company
New York & Company, Inc. is an omni-channel women’s fashion retailer providing curated lifestyle solutions that are versatile, on-trend, and stylish at a great value. The specialty retailer, first incorporated in 1918, has grown to now operate 426 retail and outlet locations in 36 states while also growing a substantial eCommerce business. Its branded merchandise, including collaborations with Eva Mendes and Gabrielle Union, is sold exclusively at these locations and online at www.nyandcompany.com. Additionally, certain product, press releases and SEC filing information concerning the Company are available at the Company’s website: www.nyandcompany.com.
Forward-looking Statements This press release contains certain forward-looking statements, including statements made within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Some of these statements can be identified by terms and phrases such as “expect,” “anticipate,” “believe,” “intend,” “estimate,” “continue,” “could,” “may,” “plan,” “project,” “predict,” and similar expressions and references to assumptions that the Company believes are reasonable and relate to its future prospects, developments and business strategies. Such statements, including information under “Outlook” and “Additional Outlook” above, are subject to various risks and uncertainties that could cause actual results to differ materially. These include, but are not limited to: (i) the Company’s dependence on mall traffic for its sales and the continued reduction in the volume of mall traffic; (ii) the Company’s ability to anticipate and respond to fashion trends; (iii) the impact of general economic conditions and their effect on consumer confidence and spending patterns; (iv) changes in the cost of raw materials, distribution services or labor; (v) the potential for economic conditions to negatively impact the Company’s merchandise vendors and their ability to deliver products; (vi) the Company’s ability to open and operate stores successfully; (vii) seasonal fluctuations in the Company’s business; (viii) competition in the Company’s market, including promotional and pricing competition; (ix) the Company’s ability to retain, recruit and train key personnel; (x) the Company’s reliance on third parties to manage some aspects of its business; (xi) the Company’s reliance on foreign sources of production; (xii) the Company’s ability to protect its trademarks and other intellectual property rights; (xiii) the Company’s ability to maintain, and its reliance on, its information technology infrastructure; (xiv) the effects of government regulation; (xv) the control of the Company by its largest shareholder and any potential change of ownership of the Company including the shares held by its largest shareholder; and (xvi) other risks and uncertainties as described in the Company’s documents filed with the SEC, including its most recent Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q. The Company undertakes no obligation to revise the forward-looking statements included in this press release to reflect any future events or circumstances.
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